It should draw our attention to the fact that Russia now joins India and China as a vortex for manufacturing. Furthermore it should come as no surprise that the closure follows an announcement late last year that Mitsubishi had struck an attractive local car assembly deal with the Russian Government.
Our problem is that the high Australian dollar and declining auto tariffs make Australia a less attractive place to operate. Those countries willing to offer higher levels of industry protection, sub standard wages and conditions, low environmental standards and a growing domestic market for cars are magnets for auto companies at the moment. We cannot compete on many of these terms and we should not trade off social and environmental standards in a race to the bottom to retain or attract investment. An alternative path is needed - one that focuses on quality, reliability and sustainability. A national plan to guide the future development of the industry is urgently needed. The Australian Government's review of the industry's future is a step in this direction.
There are important lessons for industry and policymakers from the Mitsubishi closure. The first is that the closure of Mitsubishi does not signal the end of the car industry in Australia. Mitsubishi was burdened by a failed vehicle financing scheme in the US which resulted in losses of around $2.8 billion in 2003. In the wake of this, it was refused a $6.5 billion restructuring package from its majority shareholder Daimler-Chrysler. This forced Mitsubishi Executives to explore options to rationalize their ailing empire. The Adelaide operations were an easy target.
Declining domestic and export sales fuelled concern that the Lonsdale and Tonsley Park plants might be closed. These fears were partly realised in 2004 when Mitsubishi Executives in Japan announced that they would close the Lonsdale Plant within eighteen months and reduce the size of the Tonsley Park workforce resulting in the loss of 1000 jobs.
Mitsubishi's global CEO, Yoichiro Okazaki declared that the restructuring `plan is our last chance for survival as an auto maker.' Ominously he went on to say that `Considering our business circumstances...it is really hard to make any guarantee or any commitment' about the future of Mitsubishi's operations in Adelaide. In the end he did make a commitment to producing a new Magna - the 380. It was a good car but the wrong car at the wrong time. Consumer preferences were shifting to smaller, more fuel efficient `green' vehicles in response to sharply rising fuel prices and growing awareness of the need to tackle climate change. The rest is history. The 380 failed to sell in sufficient numbers to satisfy Head Office in Japan. Even if it did sell well, it is doubtful that the Adelaide factories would have been spared the axe.
The momentum for closure gathered momentum during the latter part of 2007 with the leaking of the `Project Phoenix' report - an internal review process within Mitsubishi's head office guiding the re-structuring of its operations. The report obtained by the ABC's Investigative Unit outlined four options for closure of the Adelaide operations. There was no ambiguity in the report about the operation remaining open. It stated that 'It is inevitable to exit from local production and concentrate on import business.'" The report recommended that closure could occur as early as February 2007 but suggested other options including June 2007, November 2007 or March 2008. Mitsubishi denied they had any plans to close the factory and reassured the State and Federal Government that the operations were secure. This was misleading at best.
It is clear that Mitsubishi was shopping around for a new location for car manufacturing and Russia was at the top of its list. Coming to terms with just why Russia, China and India are so attractive to auto manufacturers is a key challenge for Australian policymakers wanting to develop `real world' strategies to secure a future for the industry here.
The auto industry in Australia must be re-oriented towards the manufacture of clean green cars for domestic and export markets. The Australian Government's $500m green car fund will help to push this along, but more will need to be done. The collective purchasing power of governments in Australia should be used to create a market for green cars. Government should also introduce stricter emissions standards for vehicles in Australia to send a strong signal to manufacturers that green cars are the future of the industry. There is no time to waste.
This article appears in the February 2008 edition of The Adelaide Review
